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What’s my credit score and why is it important?

9 November 2018

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What’s in a number? Understand the importance of your credit score — starting with how to find it.

Your credit score isn’t just a tool that helps lenders determine how much risk they take on when they lend to you, it can also affect rental applications and even insurance rates.

In this guide, we show you where you can find your credit score and what goes into calculating it.

Page at glance…

What is a credit score?

A credit score is a summary of your credit history expressed as a number ranging from 300 to 850. While several different credit bureaus offer credit scores, the most widely known type of credit score is developed by FICO (Fair Isaac Corporation).

The credit score model a risk-based system that calculates the possibility of you defaulting on your next loan — the lower your score, the higher the possibility you’ll default.

Where can I get my credit score?

Your account statement. Some banks and financial institutions list your credit score on your credit card or loan account statement. Check your statement to see if this is a service offered to you.

Credit score services. There are many free credit score services that don’t require your credit card details. Credit Sesame is one such provider, offering your credit score for free. You can also get your credit report below. Keep in mind these free services don’t provide you with your FICO score; you will instead get a score based on a non-FICO scoring model.

Credit or housing counsellors. If you are in need of financial counseling, credit and housing counsellors can provide you with a copy of your credit report and credit score for free.

Do you only have one credit score?

You have multiple credit scores, as each one is calculated differently depending on the credit reporting agency. Companies can request your score from any of these agencies, so may receive a different score depending on the one they call.

What makes up your FICO credit score?

As the most common type of credit score, it’s important to know the FICO score is calculated. There are five components which make up your FICO credit score, with each of them weighted differently:

Payment history: 35%. Your payment history refers to whether you made payments on your credit account on time or whether you have any defaults, liens, lawsuits or bankruptcies listed on your records. If you do make a payment late, how much it affects your score will depend on how late the payment is, how much is owed, how recently it occurred and how many late payments you’ve made.

Credit utilization: 30%. This is the total amount of your credit card balances divided by your total credit card limits. It makes up 30% of your FICO score, and 30% is the credit card utilization percentage you should aim for.

Length of credit history: 15%. How long is your credit history? When did you first apply for a credit card or loan? The further back your history goes the better off you may be. If you have a short history, or no history at all, you may find it just as hard as someone with bad credit to be approved for a loan.

Type of credit in use: 10%. The type of credit accounts you have also have an affect on your FICO score. Whether or not your credit accounts are open won’t matter because the fact you held them will still potentially affect your score.

New credit: 10%. The number of credit inquiries you’ve made recently and over the past year will affect your score. It’s generally not advised to make multiple inquiries over a short space of time.

Those three digits can make a big impact on your life – good and bad – so they’re worth keeping an eye on. Monitor your credit score carefully and you may just help edge it closer to the 850 mark.

Common missteps that hurt your credit score

You probably already know that being late on payments or defaulting on a loan is guaranteed to lower your credit score. Here are some other ways you can hurt your credit:

Applying for multiple credit cards or loans. Multiple applications — not preapplications — come with multiple hard credit inquiries, which can have an adverse affect on your credit score.

Letting your credit card balance get too high. A credit card balance worth more than 30% of your available credit (i.e. the amount you could have spend had you hit your limit each time) will result in a lower credit score.

Closing credit cards. When you close a credit card, the amount of credit available to you goes down — causing your credit utilization to go up. Closing an old credit card can make your credit history seem shorter than it actually is, lowering your credit score slightly.

Renting a car with anything but a credit card. Car rental companies sometimes run a credit check on customers who don’t want to pay with a credit card.

Not paying parking tickets or medical bills. Those bills don’t just pay themselves. After a while, medical bills and parking tickets get sent to collection agencies, which becomes a line on your credit report.

Signing up for a new phone contract. Yep, phone companies pull a hard credit check when you sign up, causing your credit score to take a temporary dip.

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4 Responses

PaulJune 7, 2017

I’m retired and I receive a estimate of 1400 a month, which 1300 is directly deposited in my south gate savings account. I was trying too get a 1500 loan to fix my home. Need d asap

Quick question. I have a credit score over 800 and my debt ratio is 29 percent. I am in the process of getting a loan for a house. During the process I have transferred one credit card balance to another card to take advantage of rates (both cards and my only two have been open for years and at the time of the original pull) my question is will the underwriter have a problem with that when they pull my credit again just before closing? My debt has not increased I just moved it to one card with a better rate and kept the other one at zero. I understand applying for new card, buying a car or increasing my debt is not good during these months. Just wondering if this will be an issue if at all since my debt has not increase?

Basically, there will be no problem to the approval of your credit application if and you have no problem on your credit file enquiries and payment defaults (in your credit file). Your approval for a home loan would generally be based on the lender’s overall assessment of your financial situation which includes but not limited to your income, assets, liabilities, credit history, etc.

If you think that you meet all the eligibility requirements of the home loan you’re applying for then there is nothing that you should be worried about. Your credit score of 800 is actually good – https://www.finder.com/use-good-credit-score. So in case you’re looking to get a home loan, your other financial circumstances will come into play when a lender considers your application.

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